Rate cut warning for borrowers: Don’t be complacent!

Angus Kidman 3 May 2016


RBA's interest rate cut is unlikely to be passed on by all banks.

The decision by the Reserve Bank to cut official interest rates after 12 months was a surprise, but it doesn't automatically mean that home borrowers will see better rates immediately.

While that's the lowest level that the cash rate has ever been at (and a direct response to a recent slowdown in inflation), banks may not choose to pass on the interest rate cut, in part or in full. In particular, because the official rate has been stable for so long, some lenders have lost the habit of linking official rate changes to their own consumer rates. We've seen several out-of-cycle rate rises in recent months, so it's risky to assume that every bank will line up.

Indeed, the last time the rate was dropped back in May, 60% of lenders, including three of the Big Four, did not pass on the full 0.25% cut, opting instead for a partial. We're keeping track of which banks have announced changes in this list, but frankly I'll be very surprised if they all come to the party.

If they do, and you're on a variable-rate loan with them, then feel free to break out a bottle of moderately-priced champagne. But if not, then it makes sense to consider if it's time to shift your loan to somewhere else offering a better interest rate.

finder.com.au calculation show that with the average national home loan of $357,200, a 0.20% reduction from the average standard variable rate of 5.12% down to 4.92% would save you approximately $500 per year. Over the typical life of a loan, that's $15,000 in your pocket. So if you're not one of the lucky ones with an automatic reduction, start looking around at other options.

Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on finder.com.au.

Picture: Shutterstock

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2 Responses to Rate cut warning for borrowers: Don’t be complacent!

  1. Default Gravatar
    Angela | May 3, 2016

    When do you see home loan interest rates rising again, or will they remain at this rate for a while.

    • Staff
      Jodie | May 5, 2016

      Hi Angela,

      Thank you for contacting finder.com.au we are a financial comparison website and general information service we are not financial experts.

      As there are a lot of changing factors that the RBA considers when deciding on the cash rate each month it is hard to predict if or when the next change will occur. Although 55% of the experts we surveyed in our monthly RBA survey this month predict there will be another interest rate cut in 2016.


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